There are many Bitcoin proponents and many more that see real value in ‘block chain’ technology so we enlisted the help our tech friends at URTech.ca to look into it further and help us explain the good, the bad and ugly of this new crypto-currency world.
First, you need to understand what the blockchain, Bitcoin and NFT’s are, so here are the very simple explanations.
What is the Blockchain In Simple Terms?
The block chain is simply an algorithm (think mathematical formula) that keeps results copied onto millions of computers around the globe, making it virtually impossible to fake. This is also called the ‘distributed ledger’.
What is Bitcoin In Simple Terms?
Bitcoin is just a digital token (i.e. not physical, not paper and not backed by any government like a dollar or peso is) created using powerful computers to solve a complex calculation that is stored on the blockchain on millions of computers. The Bitcoin formula is available to everyone so anyone can use their computers to “mine” for them. The formula gets harder as more Bitcoin are “mined”, making the next bitcoin harder to fine than the previous one.
What are NFT’s in Simple Terms?
NFT’s are nothing more than digital tokens stored on the block chain that ‘artists’ assign to their ‘art’ making verification of ownership easy and adding value. ‘Art’ has been defined as digital graphics, photos, and even a screen shot of the very first Twitter post. In case you are wondering NFT is the acronym for Non-Fungible Token, and all that means is that it provides a highly trustworthy, provenance.
What is Good about Blockchain, Bitcoin & NFT’s?
To be sure, the blockchain has some real world advantages to our traditional ways of storing information like bank records. Because anyone, including you, can add your computer to the blockchain, there are millions of computers mining bitcoins, storing data on the blockchain and making NFT’s.
You could “mine” Bitcoin using software on your normal home computer, but because the mathematics of mining the next Bitcoin is now so hard, you really need to use mid to high end video cards ($250 to $1000 each) with powerful dedicated chips (ASIC’s) to make it cost effective.
So lets think about some real world benefits of applying block chain technology. Think about the chaos that would happen if your bank were hit buy a major cyber-attack that wiped out all of YOUR transaction and balance histories. Not good. While nothing is impossible, it is close to impossible to wipe out a large blockchain like Bitcoin because it is stored on millions of computers all over the world.
It is also nearly impossible to fool it, because more than 50% of the computers on a blockchain have to agree on a transaction before it is finalized. Think about how hard it would be to fake a transfer from two days ago; you would need to hack millions of computers and get them all to change their records. Challenging is a serious understatement, for even large governments like Russia or China that may want to damage or discredit the blockchain.
Another huge advantage of Bitcoin & NFT’s on a blockchain is how easy the are to move around. Imagine trying to move a bar of gold from one person to another. Now think about the simplicity of of changing owner information of a digital token like Bitcoin.
What is Wrong With Blockchain, Bitcoin & NFT’s?
So, if the blockchain products are so great, you might wonder why so many people bash them:
- VALUE IS ARBITRARY: Bitcoins and NFT’s are not physical and have zero intrinsic value. If you own something as silly as a collectable baseball trading card, at least you have the paper card and viewing that card may give you and others pleasure that auctions can put a value on. In economics buying Bitcoins, NFT’s and the like are referenced in the “greater fool theory” in which the current owner THINKS it is worth what he/she paid because they think there is someone even stupider than they are and will pay more for it in the future.
- NO-ONE IS IN CONTROL OR RESPONSIBLE: If you have a problem with a blockchain product like Bitcoin or an NFT, there is no central body that you can work with to fix it. These tools are COMPLETELY decentralized so no one person, group or government has oversight.
- ILLEGAL / IMMORAL ACTIVITIES: Because no-one is in charge and the records of ownership are just long strings of numbers (i.e. nowhere does the block chain have a name and address field), Bitcoin makes it impossible for police or even federal governments to trace the source and destination of a transfer. That means if you are a drug dealer, human trafficker, or selling state secrets to an enemy government, there is not a way to prove you paid or got paid, making prosecution much harder. Remember that the famous Chicago gangster Al Capone was sent to jail, not for murder or extortion, but income tax fraud! Law enforcement usually tracks down the real bad guys by ‘following the money trail’ which does not exist with Blockchain products like Bitcoin.
- BITCOIN MINING IS VERY EXPENSIVE: It is conventional wisdom that all things digital have a (near) zero cost, but the Bitcoin math problem is now so complex the Bitcoin miners MUST use vast amounts of computing power to find the next coin, and that means vast amounts of heat are produced, vast amounts of air conditioning are required, substantial amounts of land are used to house the computers, and most importantly vast amounts of electricity are used. All totaled up, Forbes and other reliable sources calculate that the cost of producing / mining a single new Bitcoin is about USD$10,000. But it doesn’t stop there because every time a Bitcoin is mined or is transferred (i.e. when you buy, sell or transfer Bitcoins) millions of computers have to update their records all at the same time and that cost (electricity, cooling, internet…) is conservatively estimated to be about $5 per transaction, and there are millions of transactions.
- BITCOIN ENVIRONMENTAL DAMAGE: Bitcoin miners are no longer running out of the basement; many are consuming large warehouses all over the world that could be used for some productive purpose. But the biggest environmental problem with block chain currencies like Bitcoin is the absolutely staggering amount of electricity being consumed to power and cool the millions of computers running at 100% twenty four hours per day. We can give you numbers from various reliable sources, but they are so large as to be meaningless to most people, so instead we will give you comparisons. Bitcoin mining alone, uses about the same amount of electricity as the entire country of Norway, or Sweden or Malaysia or Poland, and definitely uses more electricity than Argentina, Switzerland, or the UAE. All just to generate and move some numbers.
- BITCOIN REAL WORLD PARTS SHORTAGES FOR REAL INDUSTRIES: Because the cost to “mine” a new Bitcoin is about $10,000 and the sale price of a Bitcoin is currently more than $50,000, there is an insatiable demand for computer chips that can perform complex Bitcoin mining calculations. This is one of the main reasons for the global computer chip shortage that has idled dozens of major auto factories, limited game console production, turned $200 video cards into $600 video cards for those who want new computers, delayed the new Apple iPhone and slowed production of current models and the reason my new Dell laptop is on an 8 week back order. The 2021 chip shortage is nothing short of a full blown crisis for many important industries; GM says their profits will be down $2 billion and Ford announced a $2.5 billion profit decline.
- BITCOIN IS EXPENSIVE TO MAKE: While it costs about $10,000 to ‘mine’ a new Bitcoin, even cheaper product like NFT art tokens cost more than $100 each. That is not the next-to-free mindset that most people have when considering digital products.
- BITCOIN IS SLOW: Because blockchain products like Bitcoin need to have their changes replicated on millions of computers around the globe before they can be validated, Bitcoin can only make 4.5 transactions per second. Compare that to Visa which processes 1,700 per second on AVERAGE and can process more than 10,000 transactions at peak times like Boxing Day and Black Friday.
- BITCOIN WALLETS ARE COMPLEX: To even buy a single Bitcoin, you need a ‘digital wallet’ which is not a simple app download and register.
- BITCOIN IS EASY TO LOOSE: Have you ever forgotten your password to an important system? Have you ever recycled a computer then realized you had old photo’s still on it? If you loose your digital wallet there is no reset and no appeal. Say for instance, your computer is hacked or dies, that money is gone forever. This is a much bigger problem than you might think. In January of 2021 The New York Times ran an article titled “Tens of billions worth of Bitcoin have been locked by people who forgot their key.” There are also legendary stories of people that junked their old computer and then remembered they bought or mined a few bit coin years ago and so have now lost hundreds of thousands or dollars. Check out this story of a man who can’t remember his codes to unlock $250,000 in Bitcoin.
- BITCOIN THEFT: In an effort to avoid the serious complexity problems of using a digital wallet yourself, many people have turned to Bitcoin Exchanges (think of them as completely unregulated, fly-by-night, banks) to keep their Bitcoin safe. This sounds like a great idea, unless the Bitcoin Exchange is hacked or its owners / staff are crooks. Take a look through our fascinating article and video on Quadriga: Did Cryptocurrency Exchange Boss Fake His Own Death To Steal All The Money? or how the TRILLION dollar loss from the Mt. Gox exchange came about when its owner CLAIMED they were hacked.
- BITCOIN TECHNOLOGY CHANGE: Do you remember 8 track tapes, or video disc’s (waaaay older than DVD’s) or even regular cassette tapes? If so you know that technology that seems completely entrenched one year will be gone the next. Because there is no central body that is accountable for block chain products like Bitcoin or NFT’s, there is no-one to manage the next transition. Do you really want your savings tied up for two years while some tech’s work out how to migrate from one technology to another… me neither.
Here are some quotes from people smarter than I:
“The same people who thought Bitcoin at $100 was expensive, now think it is fairly valued at $30,000.” – J.R. Rim
“Bitcoin is well-known, though little understood.” – Anderson Cooper
“It doesn’t do anything. It just sits there. It’s like a seashell or something, and that is not an investment to me.” – Warren Buffett
“I am not a fan of Bitcoin and other Crypto currencies, which are not money, and whose value is highly volatile and based on thin air.” – Donald Trump
Bitcoin, Blockchain & NFT Takeaway
There certainly is a place for the blockchain in the future of records keeping and it most definitely looks like Bitcoin and NFT’s are going to be a fun place to gamble for the next few years. Just be sure to remember it IS gambling.
As we described, the value of a block chain is arbitrary and prone to all kinds of abuses and problems. A Bitcoin, an art NFT, Etherium, Litecoin, or any other digital currency is like the opposite of playing musical chairs with fake million dollar bills. When the music stops, you want to make very sure you are not the one holding the last chair.